CareDx, Inc.

And welcome to the CareDX, Inc. Second Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ian Cooney, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today. Earlier today, CareDX released financial results for the quarter ended June 30th, 2022. The release is currently available on the company's website at www.caredx.com. Reg Cito, Chief Executive Officer, and Abhishek Jain, Interim Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, are examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that can cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, August 4th, 2022. CareDX claims any intention or obligation except as required by law to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Reg.

Thanks, Ian. Good afternoon, everyone, and thank you for joining us for CADEX's second quarter 2022 earnings call. I'd like to begin by focusing on the following financial, operational, and strategic highlights in Q2. Through strong execution discipline, I want to highlight we have, one, continued to maintain our excellent financial position with over $300 million in cash, no debt, industry-leading gross margins, and with a demonstrated path to profitable growth. Two, return to sequential, mid-single-digit testing services volume growth. Importantly, we have now passed the Nadir and Transplant volumes, which we saw in Q1. And three, we've scaled our collections infrastructure to more efficiently capture the revenue opportunities from the increasing mix of commercial and Medicare Advantage patients. Strategically, we're delivering on our long-term mission and vision. Our vision is to be a leader in the transplant ecosystem and with a long-term goal of connecting one in two transplant patients. AlloCare, our patient app, is a perfect example of that progress where there's been now more than 50,000 downloads pre- and post-transplant patients. And our mission is to improve transplant outcomes by bringing innovative intelligence solutions exemplified by our new artificial intelligence modalities with AI kidney and AI heart. Now onto the first topic, our excellent financial profile. Our board and management team believe that maintaining a strong balance sheet is important to Caredex's success. You may recall that in Q1 of last year, we took advantage of a favorable market conditions to bolster our cash position by raising $188 million through a public stock offering, ensuring that we can be self-funding for the foreseeable future. This is a competitive advantage for KDX in the current market environment, particularly as we have a clear path to profitability. Unlike our peers, we will not have a near-term need to raise capital. And over the longer term, we have the flexibility to deploy capital in a way that we will increase the value for shareholders. We receive very positive feedback from our long-term investors on this. Our path to profitable growth is built on industry-leading gross margin, and we continue to focus on driving efficiencies in our lab and through the benefits of automation and scale. We maintained our adjusted EBITDA margin versus Q1 despite increased costs in a conference-heavy spend quarter. After adjusting for non-recurring legal expenses in Q2, we would be close to break even, similar to Q1. Notably, 12 of our prior 15 quarters were positive adjusted EBITDA. Looking forward, even including non-recurring legal expenses, we are targeting to be adjusted EBITDA positive by the first half of 2023. On to transplant volume and performance. As we predicted last quarter, we were pleased to see an increase in transplant volume in Q2. We hope an increase in hospital starving will lead to even further volume increases in the second half of the year as elective procedures and living organ donation numbers return towards pre-COVID levels. Transplant volume in Q2 grew mid-single digits sequentially, but declined by mid-single digits year over year. As a reminder, last year, Q2 2021 was the highest ever quarter for transplant volume. During Q2 2022, our testing services volume grew roughly 6% sequentially and 20% year-over-year to deliver over 45,000 tests. With these 45,000 tests, we passed a major milestone where CareDX has delivered more than 500,000 patient test results across heart, kidney, and lung patients. We feel encouraged by our Q2 performance in the face of a challenging transplant market, but are also pushing the organization to do even better in the back half of the year. Now looking at CareDx's performance. For the second quarter of 2022, total revenue was $80.6 million, increasing 9% compared to the year-ago quarter, with most of our revenues coming from testing services. For kidney testing services, we continued with our winning formula of adding AlloSure name protocols, adding new centers, and now expanding further into community nephrology. At the end of June, we have more than 90 Allishaw kidney protocols across both centers and in community nephrology. We are starting to see nice progress in community nephrology where we've expanded our field force and had our best ever quarter. We're encouraged by our continued progress in reaching this underserved population. Now onto heart and lung testing services. The heart care attachment rate remains greater than 95%, continuing to highlight the value of multimodality for both patients and physicians. We are pleased to see continued momentum for our shore lung with over 1,400 tests ordered in the quarter and now used in 60% of lung centers. We remain in discussions with CMS over the reimbursement of our shore lung and look forward to helping our patients receive reimbursement for this valuable test. Now on to collections reimbursement. Increasing our rates of collection has been a major priority. We continue to scale our internal billing infrastructure have now added third parties to add extra horsepower because of the influx of new Medicare Advantage and commercial plans. As part of this process, achieving reimbursement coverage is critical. We use the greater than 80% that LMAP payer coverage has achieved as the gold standard, where we are covered by all the major insurers in Medicare. As a reminder, this was a long multi-year process, including conducting long-term studies, completing randomized control studies, and with the goal of incorporating guidelines. we are working towards achieving the similar level of coverage as Alimap Heart in Alishaw Kidney, Alishaw Heart, and Alishaw Lung. This represents a significant upside opportunity. As an example, if tests in 2021 were reimbursed at the same coverage levels as Alimap Heart, then an additional $100 million plus would have been captured in the testing services bottom line. We continue to work closely with payers while investing in producing the evidence required to receive reimbursement. Recently, We're pleased to see dendroisophagin A being considered as part of the next iteration of the ISHLT guidelines. As a reminder, Alimap has already been incorporated in the ISHLT guidelines. On pricing, I want to remind everyone, we do not set the Medicare price. In addition, we target commercial contracts at or above the Medicare rate. And the main driver of fluctuations in ASPs is changes in payer mix. The success of these new launches with Alishaw Heart Alloshore lung and the increased progress on our strategy to expand into the community nephrology with Alloshore kidney has increased the percentage of commercial patients receiving our tests. Now moving on to innovation. On the pipeline, we continue to make progress with Allomap kidney and Euromap. In May, Biomarkers in Medicine published new data demonstrating that Allomap kidney gene expression profiling predicts the probability of allograft rejection for both antibody media rejection and T-cell mediated rejection. This represents the second independent validation of Alimap-Kinney and notably uses multi-center prospective data from OCRA. We're on track with our delivery of Alimap-Kinney as part of our 2022 plan and plan to also start laboratory validation process for Euromap in the second half of this year. Additionally, we're now incorporating artificial intelligence into our testing services portfolio. We believe this represents the next major move within transplant patient care. We announced AI Kidney at ATC, the only donorized cell-free DNA solution that features an additive AI-enabled algorithmic risk assessment tool. AI Kidney will deliver information regarding a patient's current risk of rejection, as well as prognosis of allograft survival at different time points. We've also licensed AI technology for our heart franchises. the first offering being AICAV, that is chronic allograft vasculopathy, highlighted our June Innovation Day. Cetus Sino, one of the leading heart transplant institutions in the United States, has been using this technology in assessing CAV, leading to a reduction in the need for angiograms. Now on to patient and digital solutions and the other parts of the business. This quarter, we recorded 6.8 million in revenue, a year-over-year increase of 178%, driven by our medication management acquisitions and strong performance across the portfolio. Patient and digital solutions are now on par with the products business. As a reminder, we've built this over the last three years and now progressing to critical scale. We have an incredibly deep and efficient transplant mode across 150 plus centers with over 80 plus transplant EMRs and over 50 plus quality and administrative services. This mode has enabled us to expand pre-transplant, and we now have more than 55,000 patient referrals to 60-plus transplant centers and have now gone into the community with the recent introduction of AlloHome, our personalized patient monitoring service. We're focused on playing a critical role connecting patients across the transplant patient journey because this ecosystem remains highly fragmented. As part of this consolidation, our AlloCare app is now integrated with both TS Access and MedAction plans to connect both pre- and post-transplant patients. This patient focus is now enabling us to build our Translant data lake platform known as AI Track and represents a future opportunity to develop more algorithmic-based solutions. This focus on connecting the ecosystem is unique and delivers on our vision of being the leader in Translant. Moving to products, this quarter was reported 6.7 million in revenue, down 2% year-over-year, driven by foreign exchange and supply chain constraints. We were pleased to complete the IVD registration process of our entire lab products portfolio as part of the recent requirements for operating in Europe, and looking to reestablish momentum for this business line as the operating environment normalizes. Cellular transplant therapy is early, but represents an entry into one of the most promising and exciting areas of clinical medicine. In addition to working with pharma partners and LSL partnerships, we signed our very first pharma partnership with Allerheem at the end of Q2. Now moving on to guidance. As you saw in our press release, we lowered our guidance and now expect our full year revenue will be in the range of $325 to $335 million. Abhishek will cover this in more detail in his section. As a transplant company, we made a commitment and a focus on patients. As part of this commitment, we've introduced new offerings, entered new organs, and expanded access to community patients. In the short term, the success of our strategy significantly increased the mix of commercial patients. The lag in reimbursement for these commercial patients has impacted ASP Dynamics. Compounding this has been an increase in complexity in collections due to patients shifting from Medicare to Medicare Advantage. In the longer term, this strong uptake of our offerings provides a longer runway for sustained growth. In closing, I'm proud of our performance in what has been a challenging environment during the first six months of the year. Between COVID, inflation, geopolitical concerns, and macro headwinds, it has been an eventful start to the year for everybody. In transplant, I believe the first half marked an idea for transplant volumes, and I feel confident we'll see continued transplant volume improvement in the second half. We are focused on the near term, the opportunity to realize improved collections as we scale our infrastructure. Mid to long term, we have the opportunity to increase commercial coverage as our mix of commercial patients increases with new launches and expansion of new organs. From a market perspective, there are multiple drivers in place to double the number of transplant volumes being conducted, including through government initiatives, increasing living donors, use of discarded organs, organ perfusion and transport technologies, and the potential of alternative organ supplies like Xenotransplant. Finally, we're proud to being the company that is focused on helping transplant patients by building the connection of products, services, and other offerings across the transplant ecosystem. With that, I'll turn it over to Abhishek.